The first wave of UAE corporate tax filings is complete. Finance directors across Dubai and Abu Dhabi submitted returns, crossed their fingers, and assumed the hard part was over.

It wasn't.

If you've watched tax regimes mature in Singapore, Hong Kong, or the UK, you know what comes next. The education phase ends. The enforcement phase begins. And 2026 will be the year the Federal Tax Authority moves from accepting filings to actively scrutinising them.

Having guided businesses through corporate tax implementations across three continents over two decades, I can tell you this: the FTA's audit approach in 2026 won't resemble the gentle guidance of 2024. The authority now has data—mountains of it—and the analytical tools to spot inconsistencies that trigger deeper reviews.

This isn't speculation. It's pattern recognition from every jurisdiction that's introduced corporate tax in the past 20 years.

➤ The Shift from Filing to Enforcement

The UAE corporate tax regime officially began in June 2023. Businesses registered, filed their first returns, and many breathed a sigh of relief. But here's what most CFOs don't realise: first filings are reconnaissance for tax authorities.

The FTA's 2024 Annual Report shows 93,000 inspection visits—a 135% increase year-over-year—powered by digital analytics. That infrastructure wasn't built for VAT alone. It's now trained on corporate tax filings, and the algorithms are learning fast.

By 2026, the FTA has moved into a phase focused on verification, consistency, and risk management—not education. Honest businesses with clean books will still get audited if their numbers don't align across systems. The question isn't if your company might face scrutiny. It's whether you'll be ready when the notice arrives.

➤ Five Critical Areas Under FTA Corporate Tax Scrutiny in 2026

1. Revenue and Expense Consistency Across VAT and Corporate Tax

The most common audit trigger we're seeing? Discrepancies between VAT returns and corporate tax filings.

Consider this real scenario (details anonymised): A Dubai-based trading company reported AED 18 million in revenue for VAT purposes but AED 15.5 million in their corporate tax return. The difference? Timing issues around recognising sales to a related party in Bahrain. Legitimate? Perhaps. But the FTA flagged it immediately.

When turnover in VAT returns doesn't align with revenue declared in corporate tax filings, the FTA's systems quickly flag the difference. Even minor timing discrepancies or classification errors attract attention if not properly explained.

What the FTA Will Examine:

• Month-by-month reconciliation between VAT-reported turnover and corporate tax revenue
• Treatment of zero-rated vs. exempt supplies in profit calculations
• Consistency in revenue recognition policies across both filings
• Documentation supporting any timing differences or restatements

2. Transfer Pricing Documentation for Related Party Transactions

In markets like Germany and Australia, transfer pricing has been the primary audit focus for a decade. The UAE is following that script exactly.

Businesses with group structures—whether regional headquarters, shared service centers, or simple parent-subsidiary arrangements—need robust transfer pricing documentation. And "robust" doesn't mean a template downloaded from the internet.

Transactions with shareholders, group companies, or overseas entities must follow the arm's length principle. Missing or weak transfer pricing documentation is a serious Corporate Tax risk.

FTA Focus Areas:

• Management fees charged to/from related entities (especially without clear service agreements)
• Intercompany loan arrangements and interest rates vs. market benchmarks
• Royalty payments for intellectual property usage
• Cost allocation methodologies for shared expenses
• Any significant profit shifts to entities in lower-tax jurisdictions

I've reviewed dozens of UAE businesses' transfer pricing files in recent months. Half would collapse under basic FTA questioning. The other half spent serious time building defensible positions. Guess which group sleeps better?

3. Free Zone Qualifying Income Requirements

Free zone entities claiming 0% corporate tax face the highest scrutiny risk—and deservedly so. The compliance requirements are specific and substance-driven.

The FTA will verify three conditions: adequate activities, adequate assets, and adequate employees. But "adequate" is subjective, and the authority is applying economic substance principles learned from international best practices.

Common Audit Triggers:

• Minimal UAE presence despite significant qualifying income claims
• Outsourced core functions without proper oversight documentation
• Management decisions made outside the UAE (revealed through board meeting minutes or email trails)
• Qualifying vs. non-qualifying income segregation issues
• Related party transactions with mainland UAE entities lacking commercial rationale

One free zone client thought having a registered office and one employee was sufficient. It wasn't. The FTA requested evidence of where strategic decisions were made, who performed core income-generating activities, and proof that assets necessary for those activities were physically present in the UAE. The documentation audit took 47 days.

4. Loss Carry-Forwards and Tax Attribute Accuracy

Businesses reporting losses get extra attention everywhere. The UAE will be no different.

Businesses reporting continuous losses while similar companies in the same sector show profits may be asked to justify their position. Sharp profit fluctuations without commercial explanation can also raise questions.

The FTA will scrutinise:

• Loss calculation accuracy (ensuring non-deductible items weren't incorrectly included)
• Business continuity and ownership change implications
• Economic substance supporting the loss position
• Timing of losses relative to tax regime commencement
• Plans for returning to profitability (yes, they'll ask)

5. Expense Deductibility and the "Wholly and Exclusively" Test

I've seen this play out in the UK, Singapore, and Hong Kong. Expense claims are where casual compliance practices get expensive.

The FTA will challenge expenses that lack clear business purpose documentation. Entertainment, donations, related party charges, and discretionary spending face heightened scrutiny.

High-Risk Expense Categories:

• Hospitality and entertainment (require detailed business purpose logs)
• Professional fees to related entities (need supporting service agreements)
• Vehicle expenses for dual-use assets
• Travel and accommodation without trip purposes documented
• Sponsorships and donations (must meet specific criteria for deductibility)

One finance director learned this the hard way when challenged on AED 180,000 in "consulting fees" paid to a related party. The invoice existed. The contract existed. But evidence of what consulting services were actually delivered? Absent. The fee was disallowed, resulting in additional corporate tax plus administrative penalties and interest.

➤ Six Actions Businesses Must Take Now

Based on experiences across multiple jurisdictions and early UAE audit patterns, here's what separates prepared businesses from exposed ones:

1. Conduct an Internal Filing Review

Before the FTA does, have a qualified advisor review your first corporate tax filing. Look for:

• Inconsistencies between VAT and corporate tax data
• Expense classifications that might be challenged
• Transfer pricing positions lacking documentation
• Free zone qualification claims without substance proof

This isn't paranoia. It's smart risk management. Finding errors yourself—and filing voluntary disclosures where needed—costs substantially less than FTA discovery.

2. Build Your Transfer Pricing Documentation File Now

Don't wait for an information request. Prepare:

• Master file (if your group revenue exceeds AED 3.4 billion)
• Local file with benchmarking studies for key transactions
• Service agreements for all intercompany charges
• Board minutes showing approval of related party arrangements
• Documentation of how pricing was determined

These should exist contemporaneously with transactions, not created retroactively when audited.

3. Implement Cross-Filing Reconciliation Processes

Create a formal process that reconciles corporate tax computations with:

• Monthly VAT return data
• Audited financial statements
• Customs declarations (if applicable)
• Banking records for interest income/expense

VAT returns are now regularly compared to customs data, corporate tax returns, financial reports, and even third-party reports. Inconsistencies across these sources are algorithmic audit triggers.

4. Strengthen Your Record-Keeping Infrastructure

The FTA requires corporate tax records to be maintained for at least seven years following the end of the relevant tax period. But this isn't just about retention duration—it's about accessibility and quality.

Implement:

• Cloud-based document management with version control
• Automated invoice and contract archival
• Clear filing taxonomy that external auditors can navigate
• Backup procedures for critical tax records
• Access protocols for quick FTA information request responses

5. Document Your Free Zone Substance (If Applicable)

For free zone entities claiming preferential rates:

• Maintain photographic evidence of UAE office spaces and assets
• Document employee hiring processes and job descriptions
• Record board meeting locations and attendees
• Create activity logs showing UAE-based decision-making
• Segregate qualifying from non-qualifying income in monthly accounting

Substance isn't just about meeting minimum requirements. It's about creating an evidence trail that withstands scrutiny.

6. Engage Professional Audit-Readiness Support

The businesses that navigate audits smoothly have one thing in common: they didn't wait for an audit notice to prepare.

Professional advisors can:

• Conduct mock audits identifying vulnerabilities
• Prepare response protocols for common FTA information requests
• Review expense classifications and documentation adequacy
• Stress-test transfer pricing positions
• Advise on voluntary disclosure options if errors are identified

➤ Frequently Asked Questions

Q1. How does the FTA select businesses for corporate tax audits in 2026?

A1. The FTA uses risk-based selection driven by data analytics rather than random sampling. Audit selection is powered by digital tools and analytics, with enforcement programs driven by risk indicators. Common triggers include revenue mismatches between VAT and corporate tax returns, large related-party transactions, continuous losses without clear business rationale, substantial refund claims, and inconsistent filing patterns. Businesses in high-risk sectors like real estate, trading, and professional services receive heightened scrutiny.

Q2. What penalties apply if the FTA finds errors in my corporate tax filing?

A2. From 14 April 2026, a reformed administrative penalty framework applies to corporate tax, VAT, and excise, with penalties calculated on a time-based, monthly model rather than steep upfront percentages. For unpaid corporate tax, penalties and interest now accrue month by month on the outstanding amount, so the longer an error remains uncorrected, the more expensive it becomes. Voluntary disclosure before the FTA detects an error can significantly reduce overall penalty exposure, while repeated late filing or failure to maintain proper records can still attract fixed penalties in the thousands of dirhams.

Q3. Do I need transfer pricing documentation if my related party transactions are small?

A3. Yes, if your UAE entity’s revenue in the relevant tax period is AED 200 million or more, or if you are part of a multinational group in scope of Pillar Two, full master file and local file transfer pricing documentation is required. The FTA examines whether transactions follow the arm’s length principle regardless of size, so even smaller businesses should maintain proportionate documentation for material related party dealings.

➤ Conclusion: From Compliance to Confidence

Corporate tax implementation in the UAE follows a predictable pattern I've observed across Asia, Europe, and North America. Year one: registration and initial filings. Year two: data collection and system refinement. Year three: targeted enforcement and precedent-setting audits.

2026 is year three.

The businesses that treated their first corporate tax filing as a compliance exercise will face difficult conversations with the FTA. Those who viewed it as the beginning of an ongoing governance commitment will navigate audits confidently.

The difference between these outcomes isn't luck. It's preparation, documentation, and professional guidance implemented before scrutiny arrives. The FTA's enforcement machinery is now operational, sophisticated, and expanding. Your response shouldn't be reactive—it should be strategic.

Don't wait for an audit notice to discover vulnerabilities in your corporate tax position. The time to strengthen your compliance framework is now, while you still control the timeline.

Schedule Your Corporate Tax Health Check with ASC Global

Don't wait for an FTA audit notice to discover gaps in your corporate tax compliance. ASC Global's experienced advisory team conducts comprehensive filing reviews, transfer pricing assessments, and audit readiness evaluations for businesses across Dubai and the UAE.

With over 30 years of global tax expertise and deep knowledge of the UAE market, we help you identify risks, strengthen documentation, and implement robust compliance frameworks before regulatory scrutiny intensifies.

Contact ASC Global today:
📞 Call: +971503287722
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